Skip to content
Opinion Column

Letter To The Editor: The Best Hope For Controlling Health Care Costs Is ‘Innovation’ By Insurers And Providers

The author is responding to a recent KHN story: Blue Shield Of California Sets Profit Cap Other Insurers May Not Imitate (Appleby, Weaver and Galewitz, 6/9).

To The Editor: 

On Tuesday, June 7, 2011 Blue Shield of California announced at the Commonwealth Club in San Francisco that it “will limit its annual net income to no more than 2 percent of revenue” and the cap will be retroactive to include its 2010 profits. In their announcement, BSCA also challenged others in the healthcare system “to identify creative ways to deliver more value for each healthcare dollar” and that this profit cap is “we believe, the first of its kind in the country.” As the president of a FirstCarolinaCare Insurance Company and chairman of the Hospital Health Plan Association, I can attest that investing profits in the community is a challenge that has already been met by the 80 hospital owned or affiliated health plans (HHPs) across the country. 

As a not-for-profit hospital-owned health insurer based in North Carolina, I can categorically state that BSCA is not the first to cap its profits. Many HHPs have provided similar innovation for many years. My company has had a voluntary cap (1.5 percent of operations) since 2005, returning a check to our clients with no strings attached when we exceeded that cap.  

Limiting our profits is a quintessential part of the responsibility HHPs have to keep their community healthy and employers strong. Our parent hospitals’ tax exemption under Internal Revenue Service Section 501(c)(3) requires that the hospital hold and use all of their assets and earnings for tax exempt, charitable purposes. This requirement includes and applies equally to the equity and earnings of wholly owned/controlled taxable subsidiaries, such as those providing commercial health insurance. The profits and equity remaining in our plan after taxes and above statutory reserve requirements must be used consistent with the 501(c)(3) status of the health system, resulting in reinvestment in the charitable mission of providing healthcare for the benefit of the community we serve.

Affiliation with a health system has quality of care benefits for consumers as well. This week, the nonpartisan Commonwealth Fund issued a report showing that provider-sponsored plans serving Medicaid beneficiaries generated a signifi­cantly higher quality score on measures of chronic illness care (64 percent vs. 56 percent) and preventive care (71 percent vs. 63 percent). In addition, provider-sponsored plans were also shown to have much a lower administrative cost ratio than non–provider-sponsored plans (8 percent vs. 12 percent) — meaning fewer state dollars are supporting overhead costs in plans like FirstCarolinaCare and other HHPs.

The news is often dominated by what the large insurers are doing, both good and bad, but mostly what is bad. Fees on insurers to be implemented in 2014 are intended to reduce the profits of the large carriers but will work to the detriment of HHPs, taxing away resources we currently invest in programs to meet the needs of our local or regional communities.

HHPs have provided value to our communities by limiting margins and administrative fees. Many HHPs raised dependent coverage ages prior to any state or federal mandate. Our plans have integrated and coordinated our provider communities and improved services for the underserved and Medicaid populations.

Like other small businesses, HHPs are the engines of innovation who strive to be more focused and respectful of businesses, providers, communities and members whom they serve. As part of integrated health care delivery systems, HHPs are vital to the future of health care in America. A local community approach to health care delivery and health insurance yields lower costs, better outcomes for patients and savings to the system. It also contributes to local economic development.

The large carriers like BSCA are so far removed from their customers it is hard for them to meet that not-for-profit mantra at times. These companies want to put a check in the mail instead of engaging at a local level with the community members who have a stake in addressing health care’s challenges.

The best hope for slowing growth in health care costs and insurance premiums is innovation by providers and insurers working with their customers to share responsibility for improving the health status of communities. HHPs have been on this track for some time. We are happy that Blue Shield of California is boarding the train.

Ken Lewis, President
FirstCarolinaCare Insurance Company

Related Topics

Cost and Quality Insurance